Big drop in office space demand

SAMBIT SAHA AND SHAOLI CHAKRABARTY

Calcutta has recorded the sharpest decline in demand for office space among the top cities, the sting of an economic slowdown made more painful by the Mamata Banerjee government’s failure to attract industry.

The city witnessed a 52 per cent drop in demand in the first half of 2013 compared with data from the same period last year, international property consultant Cushman & Wakefield reported on Wednesday.

In the period under study, consumption of space out of the total area ready to be used was down by 15 per cent nationally. Some cities such as Pune and Chennai resisted the contraction by recording growth.

“Subdued economic conditions at domestic as well as international levels and the lack of pro-industry policies by the state government have contributed to weak demand,” Sanjay Dutt, executive managing director for South Asia at C&W, said.

The real estate consultancy cited the lack of a “pro-SEZ policy” in Bengal as one of the reasons for the lower consumption of office space, which is mainly driven by IT and IT-enabled services.

“There are enquiries but people are just not signing on the dotted line. They are in wait-and-watch mode. We need a big anchor like Infosys and a deluge will follow, as had happened with IBM in the past,” Abhijit Das, office director of C&W in Calcutta, said.

A C&W study noted that the share of the IT& ITeS sector in the Calcutta office pie dropped from 90 per cent to 35 per cent last year.

Mamata’s red flag to the proposed Infosys SEZ has led India’s second largest IT company to putting its 50-acre Rajarhat campus on hold. Some other firms have also scrapped their SEZ plans, sources said.

Calcutta has always been a laggard compared to destinations like Bangalore, Mumbai or NCR in terms of demand for office space with supply of around 1-1.2 million sq ft.

“Consequently, if a company decides on national expansion, Calcutta is not on the priority list because of its subdued economy,” Das said.

Real estate circles cite high rent as one of the drawbacks of the city’s office space market, dominated by Salt Lake’s Sector V and New Town.

Rent is around Rs 50 per sq ft, on a par or even higher than pockets of Bangalore or Pune. This leads companies to opt for those cities rather than Calcutta with its attendant industry-unfriendly environment.

Real estate developers blame higher municipal tax for the problem. “Taxes in Calcutta are steep. In Salt Lake, taxes contribute to about 30 per cent of the total rent. Otherwise, the rent is not too steep,” Ravindra Chamaria, CMD of Infinity, said.

Infinity has 7 lakh sq ft out of its 20 lakh sq ft built-up space vacant. IT veteran Kalyan Kar, co-founder and MD of Inthink, said the city was paying the price of “exuberance” in the past.

“There is an oversupply situation that has coincided with several office constructions being completed around 2012. These were started in 2008, anticipating a boom in business. However, Calcutta did not take off as expected due to a depressed market. Rent is high, too.”